Salary sacrifice amount not correct?

Pinky_UK

Hi

I am a higher rate tax payer, PAYE and pay into my pension via salary sacrifice.

I was under the impression that I would get £1.40 be paid into my pension for every £1 that comes out of my pay, and that this would be done automatically (ie I would not need to claim directly for more tax relief).

it’s not, so what am I getting wrong?

molerat

I am afraid you are way off the mark. With salary sacrifice your salary is reduced by £1 and £1 goes in to your pension. That £1 reduction in salary means you don't pay tax, at any rate, or NI on that amount, there is no tax to reclaim as you haven't paid it in the first place.

You would never get £1.40 in your pension under any contribution scheme for a £1 contribution, the maximum would be £1.25 and you would need to claim back any applicable higher rate additional tax.

mrklaw

£1 from your salary = £1 in your pension. You do get 42% tax relief (assuming not scotland) but thats already accounted for by getting the gross sacrifice in the pension.

that £1 if you didn’t sacrifice it, would be 58p in your net salary. So you can look at it as only ‘costing’ you 58p to put £1 in your pension.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6666848/salary-sacrifice-amount-not-correct

You aren't getting any pension tax relief at all.

Salary sacrifice is where you agree to a reduced salary in return for additional employer pension contributions and you are not entitled to may tax relief on employer contributions.

But you do avoid paying any tax and National Insurance on the salary you no longer have. Which is why salary sacrifice is so popular.

itsthelittlethings

I fail to see how people can be higher rate tax payers but not able to understand salary sacrifice.

Pinky_UK

Thank you all.

I now understand the flaw in the way I was looking at things.

I am glad I asked, even if I surprised people by my ignorance.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81986297#Comment_81986297

You aren't ignorant, you have asked and understand the answers.

Much more on the ball than those who have asked a similar question and argue till they're blue in the face that their maths is right and countless regular posters are all wrong!

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81986273#Comment_81986273

We see many posters on the forum earning > £100K , who have little idea at all about personal finance, pensions etc.

I have a friend whose other half is a high performing headteacher, earning close to £100K and they never even look at their payslips.